Good morning, ladies and gentlemen, and welcome to Trustmark Corporation’s Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation this morning, there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Investor Relations at Trustmark. Please go ahead.

Good morning. I would like to remind everyone that a copy of our third quarter earnings release, as well as the slide presentation that will be discussed on our call this morning is available on the Investor Relations section of our website at trustmark.com. During the course of our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release as well as our other filings with the Securities and Exchange Commission. At this time, I’d like to introduce Gerry Host, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone, and thanks for joining us. Also joining me this morning are Louis Greer, our CFO; Barry Harvey, our Chief Credit Officer; and Tom Owens, our Bank Treasurer. I’ll start by reviewing some highlights on Page 3 of our presentation. We are pleased with the solid financial performance Trustmark achieved during the third quarter. Looking first at loans held for investments, they increased by $94 million from the prior quarter, to total $7.5 billion. When compared to the prior year, balances increased by $707 million or 10.4%. Revenue excluding income on acquired loans totaled $135.5 million, an increase from both the prior quarter and year-over-year. Net interest income on a fully tax equivalent basis, excluding acquired loans increased by 2.7% from the prior quarter, while noninterest income increased by 1.1%. Core noninterest expense continued to remain well controlled totaling $96.6 million for the quarter. We achieved cost savings of $1.9 million during the third quarter related to our previously announced early retirement program. Credit continued to remain solid, as nonperforming assets decline during the third quarter. The allowance for loan losses represented 256.5% of nonperforming loans excluding specifically reviewed impaired loans. The allowance for held for investment and acquired loans totaled 1.06% of total held for investment and acquired loans. Net income in the third quarter totaled $31 million, which represented earnings per share of $0.46. I’d also like to remind you that our Board yesterday declared a quarterly cash dividend of $0.23 per share payable on December 15, 2016 to our shareholders of record on December 1. Turning to Slide 4, we’ll review this quarter’s results in a little bit more detail. At September 30, 2016 loans held for investments totaled $7.5 billion, an increase of approximately $94 million from the prior quarter,…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Catherine Mealor of KBW. Please go ahead.

Thanks, good morning, everyone.

Good morning, Catherine.

Can you give us the total balances of this four energy credits that were downgraded this quarter, and then what the current reserve is on these credits?

Yes. I’ll let Barry maybe to give an idea - just a little color around all four of those. Barry, if you would.

Okay. That’s great. Thanks, Gerry.

Sure - okay, I’d be glad to, Catherine. The total amount downgraded is going to be around $54 million on the - from the credit size standpoint. The four credits in question are going to - of course all in our energy book. A couple of them are oilfield services related, a couple of them are midstream. And they all did come through the process sort of our quarterly review process that we performed looking at the updated financials as well the borrowing bases and the covenant package, making sure we are in compliance there. Again, these are all credits that we continue to reserve for based upon the fact that they are operating companies and they are working capital or nonworking capital in nature. So therefore, they blend into overall reserve. They do not have different reserves that are specific to them being energy versus another industry. So that’s how we continue to reserve for this portfolio, and we are very comfortable with that process thus far. Here again, the reason for the lag possibly from the commodity price change that we saw in the fourth quarter of 2014 and continued all the way through the latter part of 2015, continues to be the fact that these companies have contracts. They mature, they get reworked. A number of things happened where the equipment is - it is either working or not working and as things are put on the shelf then obviously it affects the revenue stream. They continue to work on their efficiency from the expense side of it. But nonetheless, they do take time for things to flow through the financials of the changes in the industry and the deterioration of the industry. So therefore, they tend to be lagging and relative to, say, something that’s more reserve based in nature. But we do continue to reserve for them appropriately based upon their risk rate. And that’s based upon whether they’re working capital or nonworking capital.

And then are these your only energy credits that are on classified in the $256 million energy book?

No, they’re not. We’ve had a few others that we’ve downgraded to this continuous review process that we do on quarterly basis.

Okay. So do you have the total amount of classifieds within the $256 million?

Well, of the criticized it’s going to be roughly around the third of our book is going to be criticized at this point.

And so is it you are saying that the reserves are going to blend into your overall reserve? Is it fair to say since your commercial book has approximately reserve of 1% on it, is it fair to say that on average the reserve on these credits is around 1%?

No, that would not be the right assumption. The overall book has obviously a much higher level of criticized and classifieds in it. So therefore it has a much higher reserve multiple times of our regular portfolio. And then of course the criticized and classified loans themselves, just like our criticized and classifieds, they have much higher reserves on them based on the deterioration. So the reserved levels we have on the energy book are very similar to what we’ve seen when we’ve looked at other peers who have a much larger energy exposure than we do. So we’re very comfortable with the level of the overall reserve, but it’s much higher than the overall portfolio reserve.

Okay, all right. That’s helpful. Thank you. And maybe just one follow-up on the expenses, can you give us a little bit of an update on, just a reminder of additional expenses from the earlier time and program that we should see for through next quarter, and your guide for expense run rate going into next quarter or next year? Thanks.

Yes Cathy, this is Louis. I will tell you that we did have some additional one-time expenses for the quarter. I think we mentioned the de-risking strategy. We had estimated it to be about $600,000. It came in a little over $650,000. And then we had some additional elections of lump sum payments that was about $250,000. So that resulted in the $900,000 expense related to the pension for the quarter. We do expect that to continue into the fourth quarter. The unknown is really the lump sum payments that we might make. So our core run rate estimate for the fourth quarter is between $95 million and $96 million in the fourth quarter. And again, we do expect that we’d be without ORE expenses, amortization in this projected pension expense in the fourth quarter for de-risking in potential lump sum, so…

Okay, that’s great. Thank you.

Thank you, Cathy.

Our next question comes from Kevin Fitzsimmons of Hovde Group. Please go ahead.

Hey, good morning, guys.

Good morning, Kevin.

Gerry, can you walk us through a little bit how you’re thinking about loan growth going forward. Are we thinking of this kind of mid-single-digit annualized pace or do you think it can go higher? And can you talk a little bit by loan type or market if it’s relevant? Just I noticed linked-quarter, state, political subdivisions was a big driver, I don’t know if that was more seasonal. And then you had declines in C&I, not sure if that was more pay downs or related to working down energy. And then, if you can tie into that - I know this is a long winding question - but if you can tie into that, how you guys are on a commercial real estate concentrations, and whether you guys are pulling back or whether you’re viewing that as an opportunity? Thanks.

I’m going to step through parts of your equation and ask Barry to fill in some color. Overall, Kevin, we’ve been guiding to the fact that our pipeline have plateaued from where they were earlier in the year. We had, as we stated, seeing low-double-digit growth over the last year, but we’re beginning to see it slow and would expect it to be in the mid to up or single digits with economic growth where it is both nationally and in the Southeast. We would expect that growth to be somewhere in the middle single digits closer to that end of the range, based on the latest pipeline information we have. In terms of market, we continue to see strength in the Texas market, good growth in Tennessee and parts of Alabama. We’re maintaining, I’d say in the Mississippi market and Florida has in terms of the Panhandle and the business we’re doing there, it is experienced relatively slow growth. So the three drivers really for us are Texas, Alabama and Tennessee. As far as geographic and product side concentrations, we do have capacity in all areas. I’ll ask Barry if he would talk a little bit more about kind of where we are specifically with CRE and C&I. And then, your question around public finance that is somewhat seasonal and, it’s also a function of opportunity, some of what we do particularly in the Texas market is more bid. In other markets like Alabama and Mississippi, it is more negotiated or project specific and provide us with better opportunities than we see sometimes in the Texas market. So Barry, if you would maybe add to that maybe especially around some concentration levels.

I’d be glad to do it, Gerry. And I think, Kevin, when you look at our growth in the third quarter commercial construction, it continues to be an area where we’re seeing funding up of projects that are on the book, as well as pursuing future opportunities for new projects that we’ll fund up in the - down the road as far as the public finance goes as Gerry indicated, this has a lot of business for us, and we’ve been in for long time. We’re fortunate that we’re getting some diversity now into the Texas and Alabama markets to complement what we’ve always done in Mississippi. And it’s a combination of [GOs and TANs and VANs] [ph] as well as pledges of revenue, and then there is also a number of other types of lending that we do within this category. It is somewhat a function within the Texas market of the number of people participating in the bidding process, and that does have inflows and we do - we are more successful from time to time than others within the Mississippi, Alabama markets, it is negotiated based on relationships and we do get better pricing on those deals, and they’re little bit more consistent in terms of the deal flow. As it relates to concentrations, and where we see growth in the future, I think from a concentration standpoint, we’re about 60% of the 100% measure on construction land and development, and we are about 172% of the total CRE 300% regulatory guidance limit. And so we feel comfortable where we sit today, I think that’s part of the picture, but we also project out over the next three years, where we think we’re going to be. We look at what’s on the books today, and once you’re…

Great, thank you. Very helpful. Gerry, can I just ask quickly you mentioned M&A before your stock is - has increased and you have a stronger multiple at this point. Can you give us sense for how - what your outlook is for opportunities or the Pate’s [ph] conversations and what you think the likelihood of you guys finding some opportunities and where those might be? Thanks.

Yes, Kevin. As we said before the radar is very much on, and we’re constantly monitoring the screen for opportunities. We always, as you’ve noted in terms of the valuation, our own valuation our currency have improved from where it has been a year ago, one of the reasons why we’ve chosen not to buyback at these levels. The challenge continues to be pricing differences between the buyers and sellers. I think, we all know that number of deals has been flat to down a little bit versus a year ago, and more of the deals are smaller in nature. So we continue to look for opportunities either within market. So that we can improve our position, we look an opportunities in contiguous markets as well, where we can expand the brand, where we can look for opportunities to bring some of the products and services to market or banks that show the growth potential. So we love to be able to say that we have an opportunity, but the reality is that we continue to look - and we continue to look for something that will add long-term shareholder value.

Great. Thanks, Gerry.

Thank you, Kevin.

[Operator Instructions] our next question comes from Brad Milsaps of Sandler O’Neill. Please go ahead.

Hey, good morning, guys.

Hi, Brad.

Hi, just maybe kind of a series of modern related questions. You guys have done a nice job of taking the loan deposit ratio higher over the last year, just curious how much higher you would like to take that? And then two, this quarter knows that loan yields were up. Did fees have a bigger impact than normal? And then maybe third, any comments around sort of how you feel about how much accretion will flow through in 2017. Any of those comments around the margin would be helpful?

Okay, well, we’ll ask Tom Owens, our Treasurer, to comment on those.

Good morning, Brad. So with your question with respect to loans to deposits currently about 83%, we would be comfortable - very comfortable continuing to take that higher, say, into the low to mid 90s, so there is easily another 10% of capacity there. Regarding the margin and loan yields, yes, third quarter as we’ve discussed in the past there is some volatility to fees. And so, what you’re seeing there is some of the benefit of third quarter being stronger in terms of loan fees. With respect to the core net interest margin, linked-quarter was unchanged. But if you strip back the volatility of the fees, probably off 2 basis points. Now, what’s interesting though is we had a similar phenomenon in third quarter of 2015. So there is a pretty clean comparisons year-over-year between third quarter 2016 and third quarter 2015. You look at the guidance we’ve given in the past of mid- to high-single-digit growth in core earning assets, offset by low-single-digit compression in core net interest margin, resulting in mid-single-digit growth year-over-year in core net interest income and that’s exactly what you see third quarter year-over-year. And we would maintain that guidance, same trends that have driven that, we expect to continue for the foreseeable future.

Okay. And remind me what a 25 basis point increase from the fed may or may not do for you guys in your view?

Again, we are slightly asset sensitive. You see that in the numbers that we published now. So all other things equal, 25-basis-point increase in the fed is accretive to net interest margin. Obviously, the wildcard there is how the industry reacts in terms of deposit pricing. So our models assume some elasticity on deposit rate paid consistent with historical experience. So I would call that modestly beneficial, assuming that those elasticities are consistent with history. It could be a bit more meaningful if the industry continues to lag in terms of deposit pricing.

Great, that’s helpful. And just maybe a housekeeping question or two for Louis, any thoughts on maybe the level of accretion in 2017 that you expect? And in the tax rate it’s kind of been around 21% the last couple of quarters, but had been running a little higher, just any color there might be helpful as well.

Well, as you are aware on the accretions, as we continue to see those loans pay down $25 million to $30 million, certainly in dollars they are going to come down, and I would expect that rate - the yield on those come down slightly. So I am looking forward maybe in 2017, somewhere between 5% and 5.5% yield on those outstanding balances. So you can figure out the average and kind of compute what we expect for accretable yield. Can’t give you an estimate on recoveries, offs we could have some. But as you’re aware, Barry and his team have done a tremendous job on some settlement of that debt. We expect that to slow in the future, specifically in 2017. When you look our tax rate, as you are aware in the third quarter, we settle up and filed our tax return as a result of truing up our accrual. We picked up about a little over $500,000 for the quarter. So if you compare the tax rate for this year, third quarter, to last year you can see they’re very similar. But as you’re aware, we did do our early retirement. We did a one-time charge of about 9.3. As a result, our pre-tax income is down about - looks like about $13 million. As our permanent differences remain constant and as our tax credit remain constant, our yields, I mean, our effective tax rate for 2016 we expect that to be around that 22% range. So you’ll probably see our fourth quarter a little higher than 21%. But again for the year, we expect that tax rate to be around 22% to 22.5%. Pretty comparable to the prior year’s of about 23.25%. So as a result of a lower pre-tax, principally because early retirement constant, there are permanent differences. We expect that tax rate to stay fairly constant at 22% in the fourth quarter.

Great. Thank you, guys.

Thank you, Brad.

[Operator Instructions] There have been no further questions. I would now like to turn the conference back to Mr. Gerry Host for closing remarks.

Thank you, operator. We’d like thank all of you for joining us and for your interest in Trustmark. And we look forward to reporting to you again at the end of January on our fourth quarter and 2016 results. So thank you all and have a great day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.